Slowing user growth has been the biggest problem for Snapchat parent Snap (NYSE:SNAP), which recorded its first-ever sequential decline in daily active users last quarter. Being able to reengage with users will be critical in encouraging more advertisers to use the platform, thus generating more revenue and potentially greater average revenue per user. Its new partnership with Amazon.com (NASDAQ:AMZN) could be the answer to all of Snap's problems.
Snap unveiled a new feature that allows users to point their Snapchat camera at a product or barcode, and when recognized, an Amazon card about the item will pop up on the screen. Tapping it will take users to Amazon's site where they'll be able to purchase it. A revenue-sharing agreement between Snap and Amazon, which hasn't been disclosed, could become a significant new stream of income.
A rich collaboration
For all of its problems, Snap remains the most popular social network among U.S. teens, significantly more than either Facebook (NASDAQ:FB) or Instagram. Even among 18- to 24-year-olds, some 78% use Snapchat. That's significant because Gen Z consumers and the older teens that follow them have considerable consumer spending power, with estimates putting their combined income at $480 billion.
Snapchat's move into visual commerce could be a powerful means of tapping into that deep well while making its platform more useful and relevant to users. By allowing users to stay within the app when they see a product they're interested in, Snapchat encourages greater engagement.
That could also help Snap with advertisers, which have been flocking to the app because its programmatic ad buying has lowered costs. Snap's quarterly revenue rose 44% in the last period due to the changes it made to its advertising platform, and now nearly 75% of its ad revenue comes from programmatic ad buys, up from 18% last year. That has helped revenue per user rise 34% year over year and 16% sequentially. Keeping users around longer may drive even more advertisers to the platform.
Collecting more consumer data
For Amazon, it gets itself in front of younger consumers. Customers on its site are typically college educated, between 45 and 54 years old, and well off, with incomes over $100,000 annually and net worth exceeding $500,000. Teaming with Snap gives it the chance to target a whole new consumer demographic, which it can then aim to keep for life.
Like many of Amazon's other retail experiments, it will give the e-commerce giant new insights into the way consumers think and interact. Like its cashier-less Amazon Go stores or the just opened Amazon 4-star, which only sells highly rated items that have proved popular with customers where the store is located, it gives Amazon greater ability to tailor the shopping experience based on what it learns.
A successful partnership with Snap opens up new possibilities as well. Amazon still has to worry about Facebook leveraging its position as the premier social networking platform to enter into e-commerce in a much larger fashion. It could make Snap look a lot more attractive as a takeover candidate for Amazon to absorb the 188 million active daily users and target advertising to them more directly.
It's a much more exciting development for Snap than its Spectacles 2.0 as it gives it the potential to considerably boost revenue and relevance at the same time. It provides Amazon with new motivations as well, and though we don't know the extent of how far this partnership will go or its worth to either party, it indicates that social media and e-commerce will become more entwined as we go forward.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Facebook. The Motley Fool has a disclosure policy.